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Some time ago, a few accounting and law firms came up with a neat idea. They would patent concepts that reduced the income tax liability of a U.S. citizen. If you recommend a patented technique, both you and your client could be held liable for patent infringement.

Are you a patent attorney? Do you check all the U.S. patents?

Does your professional E&O coverage include protection against lawsuit for patent information?

Should some party, such as a law firm, accounting firm, or independent adviser be able to patent a tax strategy that would preclude use by other financial advisers?

Taxpayer rights are threatened
More than 15 national organizations representing consumer, taxpayer, charitable, financial planning and tax adviser groups have recommended a provision in Senate Bill 23, The Patent Reform Act of 2011, to address the serious problem of tax strategy patents. This pro-taxpayer measure is a critical component of any comprehensive patent reform effort. The ongoing, serious concerns associated with tax strategy patents pose a significant threat to American individuals and businesses.

The problems associated with tax strategy patents are multiple and quite complex. Such patents would limit the ability of taxpayers to utilize interpretations of tax law intended by Congress – effectively creating a monopoly for the patent holders to determine who can and cannot utilize parts of the tax code. Financial advisers, who are not patent experts, would have to be aware of such patents, and either provide tax advice that complies with the patent holder’s requirements, risk a lawsuit for themselves and their clients, or not provide the most advantageous advice to clients.
These patents already affect myriad tax planning vehicles, including retirement plans, real estate transactions, deferred compensation, financial investments, charitable giving and estate planning. The idea of patenting a simple, basic technique like a consumer creating a financial plan for funding college education, utilizing incentive programs to insure against tax liabilities, and using life insurance to generate income is ridiculous.

As of now, 130 tax strategy patents have been issued, and more than 150 are pending. This trend will continue to grow exponentially without congressional action. For example, how would you feel personally if told that your attempt to coordinate your employee benefits with your IRA, TSA, annuity, life insurance or real estate was in violation of some patent?

The National Taxpayer Advocate, Nina Olsen, has also publicly stated her support for a legislative solution to this problem. Clearly, with such overwhelming support and momentum over the last several years, the time has come to finally enact this proposal.

What can you do? Simple. Make a copy of this article and send it with a letter, note or business card to your two senators and your representative.